Paddy Deighan is a real estate investor, attorney and advocate. This blog is dedicated to providing useful information, tips and guidelines for all of your real estate needs.
Saturday, December 15, 2012
Clarification of a Bankruptcy – Short Sale Issue Part I
Clarification of a bankruptcy – short sale issue. I read today a release from bank of America that attempted to clarify some bankruptcy issues as they relate to short sale approvals. Essentially what was stated is correct some of the time but not always…in fact a majority of the time, negotiators will NOT have to get short sale approval from the bankruptcy court.
The Bank of America release may be found in the agent resource center, but here is the release:
Bank of America can review a short sale offer while the loan is in an active bankruptcy. To complete a short sale and issue the approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require bankruptcy court approval.
Homeowner(s) should consult with their Bankruptcy Counsel about how these programs could affect their mortgage and their bankruptcy case.
When a loan is in bankruptcy, there is an Automatic Stay, also known as a "hold," of any collection activity placed on any and/or all debts to which the debtor is a party. Before the short sale specialist can discuss the short sale, Bank of America must have written authorization from the Homeowner(s') Bankruptcy attorney on the law firm's letterhead to discuss loss mitigation options with the borrower. This is in addition to the Bank of America Third-Party Authorization Form needed from the borrower to speak to the bankruptcy attorney and the listing agent.
If Homeowner(s) is/are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, all communication and notices are for information purposes only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. The Homeowner(s) is/are not obligated to discuss their home loan with Bank of America or enter into a short sale agreement or other loan-assistance program. Customers should consult with their bankruptcy attorney or other advisor about their legal rights and options.
For a short sale to be processed to completion for a loan in bankruptcy, Bank of America must receive one of the following releases issued by the bankruptcy court:
Granted Motion to Sell*
Granted Motion for Relief from Automatic Stay with noted short sale negotiation*
Discharge with Abandonment, Closing Order, Final Decree, Trustee No Asset Review
*A granted Motion differs from a requested Motion.
Note: If Homeowner(s) receive(s) a discharge under a Chapter 7 a bankruptcy proceeding: discharge releases the Homeowner(s) from personal liability for certain specified types of debts. The Homeowner(s) is/are no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the Homeowner(s) from taking any form of collection action on discharged debts, including legal action and communications with the Homeowner(s), such as telephone calls, letters, and personal contacts.
Although a Homeowner is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
There are three types of bankruptcy filing, Chapter 7, 11 and 13 (as far as individuals are concerned). The above is sound advice in MOST, but not all Chapter 11 & 13 petitions but it is inapplicable to many Chapter 7 and some Chapter 11 and 14 petitions.
Padraic Deighan J.D. Ph.D